Ron Prentice bought goods from Shelly Katz. On May 20, Shelly gave Ron a time extension on his bill by accepting a $5,000, 7.00%, 150-day note. On August 26, Shelly discounted the note at Roseville Bank at 8.00%.
What proceeds does Shelly Katz receive?
To calculate the proceeds that Shelly Katz receives from discounting the note at Roseville Bank, we need to determine the principal amount of the note and the discount.
1. Principal Amount of the Note:
The principal amount of the note is $5,000, which is the face value or the amount that Ron Prentice owes to Shelly Katz.
2. Discount:
To determine the discount, we need to know the discount rate and the discount period. The discount rate is 8.00%, and the discount period is the remaining time until the maturity date from the discount date.
Discount Period (in days) = Maturity Date - Discount Date
The note was discounted on August 26, and it has a 150-day maturity, so the discount period is:
Discount Period = 150 - (August 26 - May 20)
Discount Period = 150 - 97
Discount Period = 53 days
Now, we can calculate the discount amount using the following formula:
Discount = Principal Amount * Discount Rate * Discount Period / 360
Discount = $5,000 * 8.00% * 53 / 360
Discount = $330.56 (rounded to two decimal places)
3. Proceeds:
The proceeds that Shelly Katz receives from discounting the note is the principal amount minus the discount.
Proceeds = Principal Amount - Discount
Proceeds = $5,000 - $330.56
Proceeds = $4,669.44
So, Shelly Katz will receive $4,669.44 as proceeds from discounting the note at Roseville Bank.